Czechia less vulnerable to energy turmoil despite Middle East tensions
Rising tensions in the Middle East have pushed global oil and gas prices higher, raising concerns about energy security in Europe. However, Czechia is far better prepared to cope with potential energy shocks than it was just a few years ago, according to economist Jan Bureš.
Global tensions push energy prices higher, but Czechia is prepared
But according to Jan Bureš, chief economist at the Czech bank ČSOB, Czechia is now in a far stronger position than it was during the energy crisis that followed Russia’s invasion of Ukraine. “The impact will depend mainly on how long the conflict lasts and whether it significantly disrupts the transport routes for energy supplies,” Bureš said in an interview with Czech Radio.
Oil prices have already reacted strongly to the latest developments. At the beginning of the week, prices jumped to around 81 dollars per barrel, the largest increase since the early days of Russia’s full-scale invasion of Ukraine in 2022. Markets remain particularly concerned about the possibility of disruptions in the Strait of Hormuz, one of the world’s most important energy shipping routes.
Why the Strait of Hormuz matters
Roughly a fifth of global oil shipments pass through the narrow waterway between Iran and Oman. Even partial disruption could push prices higher.
“It doesn’t have to be physically blocked,” Bureš explained. “If the risks become so high that shipping companies cannot insure vessels traveling through the area, the strait can effectively become unusable.”
Despite the surge in prices, Bureš does not expect Europe to face immediate supply shortages. Instead, the main risk would be higher energy costs, which could gradually feed into inflation.
“If oil prices were to stay significantly above 100 dollars per barrel for several months, we would likely see stronger inflationary pressures in Europe,” he said. According to estimates from ČSOB economists, this could add roughly 0.6 to 0.9 percentage points to inflation.
That would mean inflation moving closer to three percent instead of hovering near the European Central Bank’s two-percent target.
Europe less exposed than Asia
However, Europe’s exposure to the current crisis may be smaller than it appears at first glance. Much of the oil and liquefied natural gas transported through the Strait of Hormuz is destined for Asian markets rather than Europe.
“In terms of physical supply disruptions, Asia — including China — is actually more vulnerable than Europe,” Bureš said.
The situation is somewhat similar in the global gas market. Prices for immediate deliveries of liquefied natural gas have surged dramatically, at one point nearly doubling in Europe. Yet long-term contracts, which matter more for companies and households, have risen much less sharply.
“The spot price jumped from roughly 30 euros per megawatt hour to almost 60 euros,” Bureš said. “But the forward prices for deliveries next year are still around 35 to 40 euros.”
For comparison, during the peak of the European energy crisis in 2022, gas prices briefly approached 300 euros per megawatt hour.
Europe better prepared than in 2022
That dramatic contrast highlights how much Europe’s energy system has changed in the past few years. Since Russia’s invasion of Ukraine, European countries have rapidly diversified their energy supplies and expanded imports of liquefied natural gas from the United States and other suppliers. Bureš says these changes make a repeat of the 2022 crisis unlikely.
“Europe is better prepared today. The infrastructure is different, gas storage levels are higher and there are more diversified supply routes,” he said.
That does not mean rising prices will have no impact. Higher oil prices could soon push up the cost of petrol and diesel, reversing a recent trend of declining fuel prices.
“We have already seen prices start to rise slightly,” Bureš said. “In the coming weeks we will probably see further moderate increases.”
Inflation risks remain
Gas prices would take longer to affect consumers, because most supplies are secured through contracts agreed months or even years in advance. However, if elevated global prices persist, the effects could become visible later.
“If the higher prices last long enough, they could show up in inflation in the coming years,” Bureš noted.
Energy prices also influence electricity costs and ultimately food prices, which economists say play a major role in shaping inflation expectations among consumers.
“When people see food prices rising frequently, it strongly affects how they perceive inflation,” Bureš said. Ultimately, Bureš says the global economic impact will depend on one key factor. “The decisive question is how long the conflict lasts,” he said. “The longer it continues, the greater the risk that it will start to have tangible effects on inflation and economic growth.”
